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Moody’s: AIG, MetLife, Prudential Cross SIFI Threshold

MetLife, American International Group and Prudential are the three most likely U.S. insurers to be deemed as systemically important enough to be subject to federal as well as state regulation, says Moody’s Investors Service in a report.

Moody’s says its screening of 2010 year-end financial data indicates the three companies cross the metric thresholds cited in a new proposed regulation that will qualify the trio for additional scrutiny as potentially Systemically Important Financial Institutions (SIFI).

“Although Berkshire Hathaway also crosses certain metric thresholds, it may not be deemed a ‘nonbank financial company’ under the Dodd-Frank Act guidelines, and therefore, it may not be a candidate for SIFI evaluation,” the Moody’s report adds.

The Moody’s report says that only MetLife, AIG and Prudential will make the first cut.

It implies that even though they qualify for additional scrutiny, it cautions that any of those three may still not ultimately be viewed as SIFI because the guidelines as proposed would create a three-stage process for determining SIFIs.

The Moody’s report is somewhat different from the views of Eric Dinallo, former New York state insurance superintendent and now a lawyer at Debevoise & Plimpton.

At a seminar on federal and state regulation of insurance held last Friday as part of an American Law Institute/American Bar Association conference, Dinallo suggested that five U.S.-based insurers would likely be deemed SIFI by the Financial Stability Oversight Council and therefore be subject to oversight the Federal Reserve Board as well as the states.

Dinallo did not single out any specific companies.

The Moody’s report said that the recently proposed guidelines from the FSOC “provide important information” on how SIFIs would, if approved in its current form, be identified and which insurers could be candidates for the designation.

"Although details of enhanced SIFI supervision have yet to be established and their full credit implications are still unknown, we believe that the new proposed SIFI criteria are an important first step," says Laura Bazer, a Moody's Vice President -- Senior Credit Officer.

She said that, in general, “we believe that greater regulatory oversight and more conservative financial and risk management requirements of these large, highly interconnected global financial institutions would be credit positive, limiting their ability to assume outsized risk, and thereby supporting their overall financial health."